High-Speed Traders Are Feuding Over a Way To Save 3.2 Billionths of a Second

A millisecond used to be a big deal for the world's quickest traders. A dispute over huge trading profits at one of the world's largest futures exchanges shows they now think a million times faster [non-paywalled source]. From a report: The controversy is about an arcane technical maneuver in which high-speed traders bombard Frankfurt-based Eurex with useless data. The idea is to keep their connections to the exchange warm so they can react fractionally faster to market-moving information. The battle is the latest chapter in a decadeslong contest among secretive ultrafast trading firms, which have pursued a relentless quest for minuscule speed advantages.

A group of high-frequency trading firms has exploited the practice to rake in hundreds of millions of dollars, says Mosaic Finance, a French firm that has complained to Eurex and European regulators. 'An arms race is OK, but you must use legal weapons,' said Hugues Morin, founder of Mosaic. Eurex says Mosaic's claims are baseless.

High-speed traders often seek to capture fleeting differences between prices of related assets, making quick response times critical. If benchmark Euro Stoxx 50 index futures rise, for example, contracts tied to Germany's DAX will usually follow. A first mover will be able to buy DAX futures before they tick higher, then sell out at a higher price -- a strategy that can add up to big profits over time. The maneuver that prompted Mosaic's spat with Eurex can improve reaction times by about 3.2 nanoseconds, according to the French firm, which calls it 'corrupted speculative triggering,' or CST for short.

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